The paper documents the evolution of the education finance system and the resulting implications on education system effectiveness in Korea. The Korean education system has successfully provided educated workers necessary for the rapid industrialization of the past 40 years. However, confidence in the education system has deteriorated rapidly since the mid- 1990s, and deterioration of public primary and secondary schools, and low competitiveness of colleges/universities has become a serious social problem. Further decentralization of education finance, and introduction of a weak form of school choice are argued to be the main elements of education reform for primary and secondary education. For tertiary education, we suggest that demand-side financing, such as scholarship and research grants, instead of supply-side financing, need to be expanded, and that a coordination mechanism for government financing for human resource development from various ministries be.